All employers need to use the RTI service from April 2013.
HMRC state that if you are a small employer (ie with nine or fewer employees) you can use the free HMRC Basic PAYE Tools package which will allow you to submit the data to HMRC when you complete the payroll. However for employers with more than nine employees it is recommended that a more appropriate software available from commercial software providers is used.
Employers and pension providers use RTI to send HMRC a ‘Full Payment Submission’ (FPS) detailing tax, NICs and other deductions when or before the payroll is run. The information needed to complete the FPS is collected by the payroll software and sent to HMRC automatically online.
For the first FPS, employers should include all employees who have been employed during the current tax year, including starters and leavers, or those that have not yet received a payment in the relevant period. The first FPS should also include the hours normally worked, that is, the number of hours a person is expected or regularly works in a week. The hours worked is required for the purposes of calculating Tax Credit payments. The second and subsequent FPSs will only contain pay and deduction details for those employees paid on that payday.
Using RTI, every payment an employer makes which is subject to PAYE needs to be reported on an FPS. If the mid-month payment is an advance, then PAYE should be operated at the point it is paid. Using RTI the pay and deductions must be reported to HMRC on an FPS on or before the time of payment.
An Employer Payment Summary (EPS) can be sent if:-
- no payments are made to any employees in a tax month
- or you want to recover statutory payments, NICs compensation on statutory payments, Construction Industry Scheme (CIS) deductions suffered (limited companies only) or an amount under the Regional National Insurance Contributions Holiday for New Businesses (NICs Holiday)
If no payments are made within a pay period, an EPS should be submitted to indicate ‘No payment due as no employees or subcontractors paid in this pay period’.
Under the old PAYE system employers told HMRC what deductions they had made from employees pay after the end of the tax year. Only then were HMRC able to review whether the correct deductions had been made under PAYE. With RTI, HMRC receive information when, or before payments are made and so will be better able to ensure the correct deductions are made from pay. This means more employees will pay the right amount of tax and National Insurance in the tax year.
Using RTI, employers and pension providers tell HMRC about tax, National Insurance contributions (NICs) and other deductions when or before the payments are made, instead of waiting until after the end of the tax year. Employers send this information to HMRC online for payments made to all their employees including those paid below the National Insurance Lower Earnings Limit. If an employer is operating PAYE then using RTI they will have to tell us about payments of earnings to all employees, even where an employee earns less than the LEL. This is a change from previously, where employers did not have to maintain a P11 if someone earnt, for example, £20 a month.
RTI will support Universal Credits (Tax Credits) by providing the Department for Work and Pensions (DWP) with up to date information about claimants’ employment income, enabling them to calculate Universal Credits payments without the need for claimants to supply employment or pension income information.
For new employees employers do not have to complete a form P46 and send it to HMRC. But they do need to obtain the P46 information from the employee and use it to complete the starter information which will be sent as part of the RTI payment submission, along with details of the employee’s first payment, when the payroll is run. Using RTI employers are required to ask new employees a series of questions – similar to the old P46 questions – depending whether the employee has a P45 from their previous job to establish the correct tax code to apply.
Where the employee supplies a P45 the employer should use the tax code and previous pay and tax details from that to calculate the tax to be deducted (as they would previously). The code from the P45 should be included on the FPS with the answers to the P46 questions, but the pay and tax from the previous employer should not be included.
Please note that employers filing RTI should not send forms P45 or P46 to HMRC as the starter and leaver details will be reported to HMRC as part of the normal RTI submissions.
At the end of the tax year employers have to:-
- indicate on their last payment submission on or before the 5 April that this is the final submission for the tax year
- provide each employee with a form P60
- complete and file any forms P11D and P11D(b) due under the old PAYE arrangements
What does not change using RTI?
The following remain unchanged:-
- PAYE – PAYE remains the same using RTI. It is only the reporting that changes
- Coding notices – using RTI employers are still able to choose how they receive coding notices; as they did previously
- Reporting a change to HMRC eg updating employee’s new name or addresses for HMRC records – an RTI submission will not update HMRC records. It remains the responsibility of the individual employee to notify HMRC of changes of name, address, etc
- HMRC messages to employers using RTI – HMRC will continue to use the Data Provisioning
- Service (DPS) and EDI outbound message services
- Payment dates using RTI – payment dates to HMRC remain the same using RTI
- Forms P60 – P60s remain using RTI
- Forms P11 – HMRC are not planning to change the requirement to complete a deductions working sheet (or electronic equivalent)